1968 (9) TMI 20 - HC - Income Tax

Taxability of unclaimed balances would depend on the nature and character of the initial receipts - If the amounts initially received partake of the character of a trading receipt, the unclaimed accumulations of such receipts would necessarily be taxable as such ; if, however, the amounts are initially the trading liability of the assessee, the unclaimed balances cannot be taxed

Summary

Issues Involved: Taxability of surplus brokerage as income, nature of brokerage receipts, interpretation of bye-laws, and applicability of precedent cases.

Issue-wise Detailed Analysis:

1. Taxability of Surplus Brokerage as Income:

The primary issue was whether the sum of Rs. 4,042, representing surplus brokerage, was rightly treated as the income of the assessee for the assessment year 1959-60. The Income-tax Officer had treated the surplus brokerage as profit, while the Appellate Assistant Commissioner reversed this, stating that the brokerage receipts were not the company's own income but were received on behalf of brokers. The Tribunal upheld the Income-tax Officer's decision, considering the brokerage as a trading receipt.

2. Nature of Brokerage Receipts:

The assessee, a public limited company, managed forward transactions in sugar through brokers and charged commission and brokerage from its members. The brokerage was received "for and on behalf of the brokers" and was to be paid out to them as per bye-law 131. The assessee maintained a brokerage account, crediting brokerage received and debiting payments made to brokers. Surplus brokerage was carried over as a liability in the balance sheet. Historically, such surplus was not treated as trading receipts by the department but was assessed as income in the assessment years 1958-59 and 1959-60.

3. Interpretation of Bye-laws:

Bye-law 130 specified the charges for transactions, including commission, brokerage, and dharmada. Bye-law 131 mandated that brokerage received by the Exchange be paid to the brokers. The Tribunal considered the brokerage as a charge made by the Exchange, thus a trading receipt. However, the court emphasized that the brokerage was received on behalf of brokers, making the Exchange a conduit for passing the brokerage to brokers, not its own income.

4. Applicability of Precedent Cases:

The court referred to the case of Morley v. Tattersall, where unclaimed balances were not considered trading receipts but liabilities. The court distinguished this from the Supreme Court case of Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, where additional amounts charged by the assessee were considered trading receipts. The court found the facts of the present case similar to Agra Bullion Exchange Ltd. v. Commissioner of Income-tax, where amounts earmarked for charity were not considered the company's income.

Conclusion:

The court concluded that the brokerage received by the assessee was a trading liability from the beginning, as it was received on behalf of brokers and was to be paid to them. The surplus brokerage, therefore, could not be treated as the assessee's income. The court answered the question in the negative, ruling in favor of the assessee, and awarded costs of Rs. 200 to the assessee.